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The perils of short term lets

A recent decision of the Upper Tribunal (Lands Chamber), in the case of Nemcova v Fairfield Rents Limited [2016] UKUT 303 (LC), merits mention – not least due to the upsurge in private short term lettings by part-time landlords. The success of the likes of Airbnb graphically demonstrates the popularity of this type of accommodation as many switch away from the traditional hotel concept.

This case involved a flat in Enfield, within a modern three storey development built in 1998, which the owner occasionally let out on a short term basis via the internet. The 99 year leasehold interest, however, prohibited the property being used for any purpose other than a private residence. Upon learning of the short term lets, the landlord brought proceedings under Commonhold & Leasehold Reform Act 2002 for a declaration of breach of covenant on the part of the leaseholder, a pre-requisite to commencing forfeiture action under the LPA 1925.

The case turned on interpretation of what was meant by the term "a private residence". HHJ Stuart Bridge found that the case turned on duration of letting – and whether in particular the short duration of each letting (usually between 1 and 3 nights) transformed the nature of the use being made of the premises to take it beyond use as "a private residence". The Judge felt that there had to be a degree of permanence, going beyond a weekend or a few nights midweek, and took the view that in such situations it could not be said that the person was using the property as his or her private residence. That was on the basis that the occupation was so transient that the occupier would not consider the property to be their "private residence, even for the time being".

On that basis the landlord succeeded and a declaration was made, leaving it open for forfeiture action to be taken. Of course, such a drastic outcome would be unlikely, as no leaseholder would sensibly continue short term lettings if the result is loss of the underlying asset. But the decision may cause other freeholders (directly or via resident management companies) to take similar action in the future; presuming such would be sufficient to bring about an immediate halt to lettings of that type.

But that could well impact on private investors looking at short term lets via the likes of Airbnb to maximise yields in areas where there is strong demand for such lets; whether employment or holiday related. Whether that, in turn, has a knock-on effect on the residential investment sector, already looking to recover following the changes in SDLT and the uncertainties of Brexit, remains to be seen.